Noyes, Clifford H. 1549 O'Connor, Bernard, to include an article; illustrations; a speech by 1561 Peake, Junius W. 1377 Reinisch, Hans Randolph, to include article and attachments with illustrations__ _ _ 1696 American Stock Exchange: List of all members and top staff, including their places of residence 1496 Banking and Securities Industry Committee (BASIC): List of all members and top staff, including their places of residence 1494 Notes submitted by Herman W. Bevis on his study of the German, French, and of Morgan Guaranty's Euro-Clear depository-Calvert, Gordon L., Investment Bankers Association of America: Letter dated October 6, 1971, urging prompt enactment of legislation abolishing stock certificate for use in interstate commerce.. Celler, Hon! Emanuel: Letter dated November 12, 1971, to Richard W. McLaren, re concern of antitrust implications of the New York Stock Exchange. 1509 1580 1646 Ernst, Martin L., Vice President, Arthur D. Little, Inc.: Letter dated October 15, 1971, elaborating on industry's automation problems.. 1577 Federal Bar Journal: Article entitled "The Status of Regulatory Independence," by A. Everette MacIntyre. McLaren, Richard W.: Letter dated November 19, 1971, in reply Letter dated July 22, 1971, from Gordon S. Macklin, in reply 1811 1650 152 142 List of all members and top staff including their places of residence 149 Letter dated November 18, 1971, submitting views in planning a 153 National Clearing Corporation: List of all members and top staff, 149 Letter dated July 8, 1971, setting forth NYSE thoughts on the 142 Letter dated October 22, 1971, setting forth a listing of the names, 149 Material relating to the incorporation of the New York Stock 175 V Additional material submitted for the record by-Continued Perkins, John H., Chairman of the National Coordinating Group for Letter dated December 15, 1971, setting forth SEC opinion re- Material relating to the incorporation of the New York Stock Reply to letter of October 4, 1971, to Hon. John E. Moss, with Report of the SEC regarding comments on pending legislation, SEC data showing number of firms which went out of business Securities Exchange Act release 8543 and other sundry releases. Article entitled "Securities Struggle-Battle for Influence Over Correspondence between staff of Subcommittee on Commerce and Letter dated October 4, 1971, from Hon. John E. Moss to Hon. Letter dated October 20, 1971, from Hon. John E. Moss, to George eral's Office.. Shultz, George P.: Letter dated November 10, 1971, in reply to letter from Hon. John E. Moss, dated October 20, 1971___ Supreme Court of the United States: Letter dated November 9, 1971, replying to letter of October 20, 1971, from Hon. John E. Moss Van Dam, Henry, Corporate Transfer Agents Association: Letter dated October 19, 1971, submitting position papers to Subcommittee on Commerce and Finance.......... Weinberg, Eli, article from Bank Administration, May 1971, entitled "A System of Certificateless Stock Transfers". Page 1534 1632 1440 1534 1415 1757 1800 1395 1709 1458 1450 1585 1419 1666 1800 1808 1809 1808 1809 1533 1581 PARTS 4 AND 5 APPENDIXES M. Answers to Questions, by Herman W. Bevis, Executor Director, N. Comprehensive Securities Depository System-Study of Canceled P. Research Report on Making the Certificate Machine-Readable. R. Four Proposed Uniform Forms-Transfer Instruction Delivery Ticket Page 1833 1838 1869 1888 1893 1895 S. The Billion-Share Automated Securities Depository (Central Certificate 1908 T. Memorandum of Understanding on a Comprehensive Securities Depository System. 1922 U. Chronology of the New York Stock Exchange, Stock Clearing Corpo ration__ 1929 V. Operating Rules of the National Clearing Corporation.. 1935 W. Report and Recommendations of the Security Imprinting and Processing Task Force of the Committee on Uniform Security Identification Procedures.. 1960 X. OCR Equipment for Reading Stock Certificates (Report to BASIC- 1971 Y. Letter from Chairman Casey of SEC to Mr. Moss regarding fails, with charts, tables, and exhibits__ 2012 Z. Suggest approach to the National Clearing Problem, with charts and exhibits. 2039 AA. Securities Industry Overview Study.. 2055 BB. Paper Crisis in the Securities Industry: Causes and Cures....... 2159 2306 2367 EE. The Multiple Causes of Fails in Stock Clearing in the United States (Volumes I and II)__. FF. A Securities Handling System for the 1975 Era-Report to New 2413 2560 2596 GG. Reducing Costs of Stock Transactions: A Study of Alternative Trade Model_ 2676 JJ. Reducing Costs of Stock Transactions: A Study of Alternative Trade 2768 KK. A Presentation for the Elimination of the Stock Certificate, by 2850 STUDY OF THE SECURITIES INDUSTRY APPENDIXES APPENDIX M EXHIBIT A ANSWERS TO QUESTIONS BY HERMAN W. BEVIS, EXECUTIVE DIRECTOR, BASIC I. DEVELOPMENT OF DEPOSITORIES (a) To what extent have such depositories been developed, and what measure of success has been achieved in these respects? CCS is an outstanding example of a large and successful depository. Very comprehensive depositories have been operating country-wide in Germany since 1937 and France since 1941. More recent depositories founded in Continental Europe and crossing national lines are: CEDEL, based in Luxembourg; C.I.K., based in Brussels; and Morgan Guaranty's Euro-clear, for eurodollar securities, also based in Brussels. Canada is working on a nationwide depository targeted to commence operations in about a year. We have heard of depositories being started up in Switzerland, South Africa, and Japan, but have no details about them. (b) What developments are expected to be achieved in the near future in this respect, and what are the plans for the longer term? This question has been answered-as to a Comprehensive Securities Depository System (CSDS) in the United States-in my Statement. (c) What have been the significant problems involved in developing depositories, and how have these problems been overcome? What, if any, problems remain to be solved, and what steps are being taken to solve them? As to past problems overcome by CCS, Mr. Howland, who is also scheduled to testify, is in the best position to comment. As to establishing a CSDS, on which BASIC is working, the problems foreseen, and the attack on them, are as follows: 1. Changes in state laws, discussed below. 2. The transition of CCS from a division of Stock Clearing Corporation, a subsidiary of the New York Stock Exchange, to an independent corporation owned and managed by its participants. An implementing group of some 10 people has been formed from employees of projected participants, working full-time. The first "work plan" for this group, legal counsel, and others listed more than 70 steps that have to be taken. 3. The interrelationship between a NYCSDS and a national CSDS, discused in my Statement. 4. The problem of a CSDS taking in deposits of huge quantities of certificates from banks and other institutions will be a one-time operational problem. This problem can be solved by careful coordination and planning between CSDS and the depositors. 5. Banks-and any other potential depositors that presently file securities by customer or trust account-will have an internal problem of considerable magnitude in consolidating all these physical holdings by issue. They are already alert to this matter. A communication plan will have to be developed to connect depositories with one another, and each with its depositors in the same and other cities. The BASIC Task Force has done some spade work in this area, and will bring in communications experts to go into the subject in further depth. (d) What, if any, changes in state laws have been necessary to permit the full development and use of depositories? What, if any, state law changes have yet to be made? Mr. Howland will no doubt speak to the question of past state law changes to enable CCS to operate. Further state law changes to enable a national CSDS to operate with maximum effectiveness include: 1. Amendment of Section 8 of the Uniform Commercial Code to provide that a "clearing corporation" (equivalent to our CSDS) may be owned by other than a registered securities exchange. 2. Amendment of Estates, Powers, and Trusts laws to permit banks to deposit fiduciary securities in a CSDS. 3. Amendment of the New York Transfer Tax law to make clear that transactions between out-of-state parties, with the sales outside the state, would not be subject to the transfer tax solely because the book-entry effecting delivery was made on CSDS records maintained in New York. 4. Probably, amendment of the state Business Corporation Act to provide that shares deposited in a CSDS may be voted directly by a depositor, after appropriate certification by CSDS to a corporation of the names and holdings of its depositors as of the record date. (This would eliminate CSDS as an obstacle in the communication chain from corporation to beneficial owner, a matter as to which corporate secretaries have expressed concern.) (e) What, if any, other regulatory problems (i.e., problems of state or Federal regulatory authorities, such as the Comptroller of the Currency, Federal Deposit Insurance Corporation, Federal Reserve Board, or self-regulatory bodies such as the New York Stock Exchange or National Association of Securities Dealers) are likely to be involved in the development of depositories? It is the intention that depositories in a CSDS be confined to financial organizations subject to the regulation or supervision of a federal or state authority. This would include broker-dealers, banks, mutual funds, insurance companies, and national securities exchanges and associations. Their regulators or supervisors would include: SEC, FRB, the Comptroller of the Currency, FDIC, state banking departments, state insurance departments, exchanges, and NASD. All of these authorities would of course be interested in the conditions under which those under their jurisdiction deposited securities they hold in a CSDS. We have not heard from any of these quarters of a reservation about immobilizing certificates held by the financial community in a CSDS. The FRB's book-entry system for government bonds, notes, and bills already serves as a centralized depository precedent for many of these authorities. It is hoped that the NYCSDS can be incorporated as a trust company under New York banking law. Preliminary discussions with the New York State Superintendent of Banks have to date uncovered no reason why this is not feasible. (f) Would a Federal law which would preempt the field of regulation of depositories and other aspects of dealing with stock certificates, such as clearance, settlement and transfer, be desirable? If so, what general form should a law take? We do not believe that a federal law regulating depositories is necessary. If the Congress chose to preempt state law in the areas cited above in answering question (d), that might be accomplished more quickly than amending the laws in the states-perhaps more quickly even than amending laws in the six to ten states that account for the vast majority of securities handlings. However, if such federal law were accompanied by a prescribed national securities depository corporation, it is believed that it would take much longer for such a corporation to immobilize securities effectively than under the course BASIC is pursuing. A point which would have to be considered in connection with a prescribed national depository is whether the depositing in it of securities held by financial institutions would be compulsory or voluntary. If the latter. the federal corporation would have to win the complete confidence of brokerdealers, banks, mutual funds, insurance companies and the customers of the first two in addition-that the corporation could protect the securities as well, and account for them as accurately, as under the present system. BASIC and its Task Force have found that this is not easy. Regardless of the form that a national CSDS takes, the Congress will naturally wish to consider whether the discharge of its responsibility requires the designation of some single national regulatory authority. One reason for this could |